Question 1

Which of the following statements is true?

Accepted Answer

A)  An open position is a hedged position in a particular currency. 
B)  An open position is an unhedged position in a particular currency. 
C)  An open position is an unhedged position in an open market. 
D)  An open position is a hedged position in an open market. 
A)  An open position is a hedged position in a particular currency. 
B)  An open position is an unhedged position in a particular currency. 
C)  An open position is an unhedged position in an open market. 
D)  An open position is a hedged position in an open market.

Question 2

The proposition stating that the discounted spread between domestic and foreign interest rates equals the percentage spread between forward and spot exchange rates is called:

Accepted Answer

A)  Interest rate parity theorem. 
B)  Domestic and foreign interest rate agreement. 
C)  Percentage spread theorem. 
D)  None of the listed options are correct. 
A)  Interest rate parity theorem. 
B)  Domestic and foreign interest rate agreement. 
C)  Percentage spread theorem. 
D)  None of the listed options are correct.

Question 3

A net short position exposes an FI to the risk that the foreign currency could rise in value against its domestic currency.

Accepted Answer

A) True 
 B)False

Question 4

Assume an Australian FI has US$100 000 in assets and US$200 000 in liabilities. Further, the FI has bought US$40 000 and sold US$20 000. What is the net FX bought position of the Australian FI?

Accepted Answer

A)  -US$20 000 
B)  US$20 000 
C)  US$80 000 
D)  US$100 000 
A)  -US$20 000 
B)  US$20 000 
C)  US$80 000 
D)  US$100 000

Question 5

A positive net exposure position in FX implies that the FI is net:

Accepted Answer

A)  long in a currency and exposed to depreciation of the foreign currency. 
B)  short in a currency and exposed to depreciation of the foreign currency. 
C)  long in a currency and exposed to appreciation of the foreign currency. 
D)  short in a currency and exposed to appreciation of the foreign currency. 
A)  long in a currency and exposed to depreciation of the foreign currency. 
B)  short in a currency and exposed to depreciation of the foreign currency. 
C)  long in a currency and exposed to appreciation of the foreign currency. 
D)  short in a currency and exposed to appreciation of the foreign currency.

Question 6

Which of the following FX trading activities is used for purposes of speculation?

Accepted Answer

A)  The purchase and sale of foreign currencies for the purpose of profiting from forecasting or anticipating future movements in FX rates. 
B)  The purchase and sale of foreign currencies to allow customers to partake in and complete international commercial trade transactions. 
C)  The purchase and sale of foreign currencies for the purpose of offsetting customer exposure in any given currency. 
D)  The purchase and sale of foreign currencies to allow customers to take positions in foreign real and financial investments. 
A)  The purchase and sale of foreign currencies for the purpose of profiting from forecasting or anticipating future movements in FX rates. 
B)  The purchase and sale of foreign currencies to allow customers to partake in and complete international commercial trade transactions. 
C)  The purchase and sale of foreign currencies for the purpose of offsetting customer exposure in any given currency. 
D)  The purchase and sale of foreign currencies to allow customers to take positions in foreign real and financial investments.

Question 7

Most profits or losses on foreign trading for FIs come from:

Accepted Answer

A)  open positions or speculation. 
B)  market making. 
C)  acting as agents for retail customers. 
D)  hedging activities. 
A)  open positions or speculation. 
B)  market making. 
C)  acting as agents for retail customers. 
D)  hedging activities.

Question 8

Which of the following statements is true for an FI that holds €200 000 in assets and €250 000 in liabilities?

Accepted Answer

A)  The FI faces the risk that the euro will fall in value against domestic currency. 
B)  The FI faces the risk that the euro will rise in value against domestic currency. 
C)  The FI has net foreign assets of €200 000. 
D)  The FI has net foreign assets of €50 000. 
A)  The FI faces the risk that the euro will fall in value against domestic currency. 
B)  The FI faces the risk that the euro will rise in value against domestic currency. 
C)  The FI has net foreign assets of €200 000. 
D)  The FI has net foreign assets of €50 000.

Question 9

The interest rate parity theorem implies that while interest rates are hedged, the dollar return on foreign investments can be above or below the return on domestic investments.

Accepted Answer

A) True 
 B)False

Question 10

On-balance-sheet hedging involves taking positions in forward or other derivative securities to hedge FX risk.

Accepted Answer

A) True 
 B)False

Question 11

The dollar loss/gain in a particular currency i can be calculated as:

Accepted Answer

A)  Net exposure in foreign currency i multiplied by the volatility to the ($/foreign currency i) exchange rate. 
B)  Net exposure in foreign currency i measured in Australian dollars divided by the volatility to the ($/foreign currency i) exchange rate. 
C)  Net exposure in foreign currency i divided by the volatility to the ($/foreign currency i) exchange rate. 
D)  Net exposure in foreign currency i measured in Australian dollars multiplied by the volatility to the ($/foreign currency i) exchange rate. 
A)  Net exposure in foreign currency i multiplied by the volatility to the ($/foreign currency i) exchange rate. 
B)  Net exposure in foreign currency i measured in Australian dollars divided by the volatility to the ($/foreign currency i) exchange rate. 
C)  Net exposure in foreign currency i divided by the volatility to the ($/foreign currency i) exchange rate. 
D)  Net exposure in foreign currency i measured in Australian dollars multiplied by the volatility to the ($/foreign currency i) exchange rate.

Question 12

Which of the following is not a source of foreign exchange risk?

Accepted Answer

A)  Trading foreign currencies. 
B)  Making domestic-currency loans to foreign corporations. 
C)  Buying foreign-issued securities. 
D)  Issuing foreign currency-denominated debt. 
A)  Trading foreign currencies. 
B)  Making domestic-currency loans to foreign corporations. 
C)  Buying foreign-issued securities. 
D)  Issuing foreign currency-denominated debt.

Question 13

Which of the following statements is true?

Accepted Answer

A)  In case an FI purchases or sells foreign currencies to allow customers to partake in and complete international commercial trade transactions, the FI acts as an agent of its customers for a fee and does assume part of the FX risk. 
B)  In case an FI purchases or sells foreign currencies to allow customers to partake in and complete international commercial trade transactions, the FI acts as an agent of its customers for a fee but does not assume any of the FX risk. 
C)  In case an FI purchases or sells foreign currencies to allow customers to partake in and complete international commercial trade transactions, the FI acts as a hedger to reduce the FX exposure. 
D)  In case an FI purchases or sells foreign currencies to allow customers to partake in and complete international commercial trade transactions, the FI acts as an agent of its customers for a fee and as a hedger to reduce the FX exposures. 
A)  In case an FI purchases or sells foreign currencies to allow customers to partake in and complete international commercial trade transactions, the FI acts as an agent of its customers for a fee and does assume part of the FX risk. 
B)  In case an FI purchases or sells foreign currencies to allow customers to partake in and complete international commercial trade transactions, the FI acts as an agent of its customers for a fee but does not assume any of the FX risk. 
C)  In case an FI purchases or sells foreign currencies to allow customers to partake in and complete international commercial trade transactions, the FI acts as a hedger to reduce the FX exposure. 
D)  In case an FI purchases or sells foreign currencies to allow customers to partake in and complete international commercial trade transactions, the FI acts as an agent of its customers for a fee and as a hedger to reduce the FX exposures.

Question 14

Which of the following statements is true?

Accepted Answer

A)  The difference between a nominal interest rate and the rate of inflation is called the spread. 
B)  The difference between a nominal interest rate and the rate of inflation is called the interest rate spread. 
C)  The difference between a nominal interest rate and the rate of inflation is called the accumulated interest rate. 
D)  The difference between a nominal interest rate and the rate of inflation is called the real interest rate. 
A)  The difference between a nominal interest rate and the rate of inflation is called the spread. 
B)  The difference between a nominal interest rate and the rate of inflation is called the interest rate spread. 
C)  The difference between a nominal interest rate and the rate of inflation is called the accumulated interest rate. 
D)  The difference between a nominal interest rate and the rate of inflation is called the real interest rate.

Question 15

Assume an Australian FI has US$100 000 in assets and US$200 000 in liabilities. Further, the FI has bought US$40 000 and sold US$20 000. What is the net foreign asset of the Australian FI?

Accepted Answer

A)  -US$100 000 
B)  -US$80 000 
C)  US$80 000 
D)  US$100 000 
A)  -US$100 000 
B)  -US$80 000 
C)  US$80 000 
D)  US$100 000

Question 16

Which of the following statements is true?

Accepted Answer

A)  Holding less assets than liabilities in a given currency is referred to as a net short position. 
B)  Holding less assets than liabilities in a given currency is referred to a net long position. 
C)  Holding less assets than liabilities in a given currency is referred to as a gross short position. 
D)  Holding less assets than liabilities in a given currency is referred to as a gross long position. 
A)  Holding less assets than liabilities in a given currency is referred to as a net short position. 
B)  Holding less assets than liabilities in a given currency is referred to a net long position. 
C)  Holding less assets than liabilities in a given currency is referred to as a gross short position. 
D)  Holding less assets than liabilities in a given currency is referred to as a gross long position.

Question 17

Which of the following is the largest market for FX?

Accepted Answer

A)  Tokyo 
B)  London 
C)  New York 
D)  Berlin. 
A)  Tokyo 
B)  London 
C)  New York 
D)  Berlin.

Question 18

Which of the following statements is true?

Accepted Answer

A)  Foreign exchange rate is the exchange rate agreed to today for future delivery of a currency. 
B)  Future exchange rate is the exchange rate agreed to today for future delivery of a currency. 
C)  Forward exchange rate is the exchange rate agreed to today for future delivery of a currency. 
D)  Future exchange rate is the exchange rate agreed to today for future delivery of a currency futures contract. 
A)  Foreign exchange rate is the exchange rate agreed to today for future delivery of a currency. 
B)  Future exchange rate is the exchange rate agreed to today for future delivery of a currency. 
C)  Forward exchange rate is the exchange rate agreed to today for future delivery of a currency. 
D)  Future exchange rate is the exchange rate agreed to today for future delivery of a currency futures contract.

Question 19

Assume an FI sells $100 million for euros on the spot currency markets at an exchange rate of $1.20 to €1.00 and invests the euro assets at an interest rate of 11 per cent for one year. What is the weighted annual return on the FI's portfolio assuming that the $100 million are 20 per cent of the FI's total assets and that the remaining assets are invested in Australian dollar assets at an average interest rate of 8 per cent p.a. (round to two decimals)?

Accepted Answer

A)  9.50 per cent p.a. 
B)  8.60 per cent p.a. 
C)  20.00 per cent p.a. 
D)  10.40 per cent p.a. 
A)  9.50 per cent p.a. 
B)  8.60 per cent p.a. 
C)  20.00 per cent p.a. 
D)  10.40 per cent p.a.

Question 20

Which of the following statements is true for an FI that holds €200 000 in assets and €150 000 in liabilities?

Accepted Answer

A)  The FI is in a net long position. 
B)  The FI has net foreign assets of €50 000. 
C)  The FI faces the risk that the euro will fall in value against domestic currency. 
D)  All of the listed options are correct. 
A)  The FI is in a net long position. 
B)  The FI has net foreign assets of €50 000. 
C)  The FI faces the risk that the euro will fall in value against domestic currency. 
D)  All of the listed options are correct.

Which of the following statements is true?

The proposition stating that the discounted spread between domestic and foreign interest rates equals the percentage spread between forward and spot exchange rates is called:

A net short position exposes an FI to the risk that the foreign currency could rise in value against its domestic currency.

Assume an Australian FI has US$100 000 in assets and US$200 000 in liabilities. Further, the FI has bought US$40 000 and sold US$20 000. What is the net FX bought position of the Australian FI?

A positive net exposure position in FX implies that the FI is net:

Which of the following FX trading activities is used for purposes of speculation?

Most profits or losses on foreign trading for FIs come from:

Which of the following statements is true for an FI that holds €200 000 in assets and €250 000 in liabilities?

The interest rate parity theorem implies that while interest rates are hedged, the dollar return on foreign investments can be above or below the return on domestic investments.

On-balance-sheet hedging involves taking positions in forward or other derivative securities to hedge FX risk.

The dollar loss/gain in a particular currency i can be calculated as:

Which of the following is not a source of foreign exchange risk?

Which of the following statements is true?

Which of the following statements is true?

Assume an Australian FI has US$100 000 in assets and US$200 000 in liabilities. Further, the FI has bought US$40 000 and sold US$20 000. What is the net foreign asset of the Australian FI?

Which of the following statements is true?

Which of the following is the largest market for FX?

Which of the following statements is true?

Which of the following statements is true for an FI that holds €200 000 in assets and €150 000 in liabilities?

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters

Exam 13: Foreign Exchange Risk

Which of the following statements is true?

The proposition stating that the discounted spread between domestic and foreign interest rates equals the percentage spread between forward and spot exchange rates is called:

A net short position exposes an FI to the risk that the foreign currency could rise in value against its domestic currency.

Assume an Australian FI has US$100 000 in assets and US$200 000 in liabilities. Further, the FI has bought US$40 000 and sold US$20 000. What is the net FX bought position of the Australian FI?

A positive net exposure position in FX implies that the FI is net:

Which of the following FX trading activities is used for purposes of speculation?

Most profits or losses on foreign trading for FIs come from:

Which of the following statements is true for an FI that holds €200 000 in assets and €250 000 in liabilities?

The interest rate parity theorem implies that while interest rates are hedged, the dollar return on foreign investments can be above or below the return on domestic investments.

On-balance-sheet hedging involves taking positions in forward or other derivative securities to hedge FX risk.

The dollar loss/gain in a particular currency i can be calculated as:

Which of the following is not a source of foreign exchange risk?

Which of the following statements is true?

Which of the following statements is true?

Assume an Australian FI has US$100 000 in assets and US$200 000 in liabilities. Further, the FI has bought US$40 000 and sold US$20 000. What is the net foreign asset of the Australian FI?

Which of the following statements is true?

Which of the following is the largest market for FX?

Which of the following statements is true?

Which of the following statements is true for an FI that holds €200 000 in assets and €150 000 in liabilities?

Why Are Financial Institutions Special

The Financial Services Industry: Depository Institutions

The Financial Services Industry: Other Financial Institutions

Risk of Financial Institutions

Interest Rate Risk Measurement: The Repricing Model

Interest Rate Risk Measurement: the Duration Model

Managing Interest Rate Risk Using Off Balance Sheet Instruments

Credit Risk I: Individual Loan Risk

Market Risk

Credit Risk I: Individual Loan Risk

Credit Risk II: Loan Portfolio and Concentration Risk

Sovereign Risk

Liquidity Risk

Liability and Liquidity Management

Off-Balance-Sheet Activities

Technology and Other Operational Risk

Capital Management and Adequacy

Filters